Investment strategies

mrje103

I was interested in the different investment strategies people follow.

For my own part, relatively new to investing and so currently just drip feeding money into a low cost global tracker. From browsing comments on here I see many people hold a mixture of passive and active funds covering different regions etc for diversity. Some people seem to hold anywhere between 8-15 different funds.

In my ignorance, I was wondering if people thought there was much point to this. I can kind of see the point in holding a general global tracker, plus a global mid company tracker and a global smaller companies tracker, in order to try and get maximum growth. But is there much benefit in holding more than that? Surely global trackers provide all of the diversification needed? I was thinking of following this strategy, and then perhaps adding a couple of commodities trackers - farmland, coffee etc later on in life for added diversity, plus a global bond and property fund.

Grateful for peoples thoughts and views.

El_Torro

You sum up the options quite well.

Personally most of my investments are in multi asset global trackers. Then I have a few extra funds for areas I think are under represented. I have a Latin American fund, an African fund, a global small companies fund and some others.

In the long run my approach might give me better returns than having all my money in a single multi asset global tracker, or it might not. I suspect it won’t make much difference either way.

Prism

I have a couple of global funds which are quite different from each other in style. I currently have five smaller/medium companies funds but I am gradually moving towards maybe just two. I have one EM fund. I have no bond funds but do have an allocation to fixed term savers.

All active at the moment.

Linton

As I am retired with an expensive lifestyle to fund, my rerquirements are rather different to someone who is in the long term accumulation phase. My investments are split into 3 separate portfolios, one for growth, one for income and the third for wealth preservation.



Concentrating on the growth portfolio which is closest in objectives to yours....


It is a relatively large portfolio based on 11 globally and company size diversified active funds. My reasons for choosing this approach are:


I need better control over the underlying allocations than can readily be achieved with passive funds. If you are accumulating, drops in prices are to be welcomed as you get more units for your money. For retirement where money is continually going out major falls can be worrying. The problem with passive trackers is that they invest in the largest companies across the world. Since these companies are largely operating in the same global markets, and their shareholders are also located across the world you get a high degree of correlation and there is reduced benefit from diversifying the geographies.


One way of reducing this correlation is to invest preferentially in small companies which are much more dependent on local markets and are less likely to attract global shareholders. They are therefore less correlated. Over the past 10-15 years small companes have generally performed much better than large ones. Small company Index trackers either dont work very well, or dont exist at all in some regions. Those that do of necessity invest mainly in the largest small companies which seems a bizarre investment strategy to me. Also the indexes are questionable - last time I looked about 1/3 of the FTSE100 would qualify as a small company in the MSCI Global SC index.


Another risk problem with trackers is that they can get strongly influenced by short term fashion. I started serious investing during the time of the tech boom/crash in the early 2000's. Start up companies with little business and zero profits were rising to ridiculously high levels in the indexes, from memory one of these almost reached the FSE100. And then they mostly went bust. Using active funds enable me to keep to a steady allocation across geographies and industry sectors. I can easily prevent any one becoming pre-dominant. With index trackers you just go with the flow.


The third reason for my strategy is perhaps maionly psychological. I feel safer being in charge of the allocations than I would feel blindly accepting whatever the market happened to do. This enables me to invest at a higher % equity than I would if I simply invested in a global racker.

AnotherJoe

There's no science to it, just a lot of psychology. Do whatever you feel comfortable with.
Your suggested approach sounds very reasonable.
One thing thats been pointed out here, with "smaller companies" you need to be quite careful, many trackers that have that name, cover companies that most would not think of at small at all, companies with perhaps billion dollars turnover. So for them you are perhaps better looking at a more active funds that are country or geography based because its too difficult for an investment company to look at "real" small companies worldwide. eg one investment company could maybe look at UK or German or US or European small companies. They couldnt possibly do the research globally.

My approach is to think i can do better than the markets in some areas. For example, I think healthcare will be a bigger business proportionately in future, so i have a couple of healthcare funds, and I also think that the time has come for solar and wind to do well over the next few years so I've bought into a couple of funds* in that area because I think they will grow faster than the generality. I also have a few shares in companies that i think will do well for different reasons. All calculated risks. And I might be wrong. But I have enough leeway in my investments I can afford it.



But if i was starting out again 40 years back i might well go for your approach mostly, but I'd still have say 10-20% in areas I thought would do better. But if i predecease Mrs AJ she will have to use an IFA. And she is also much more risk averse than me so wouldnt like most of my investments if informed about the volatility. I dont typically tell her when i've lost £100k until 10 years have passed

Maybe in 10 years time I'll just sell everything down to 4 or 5 investments.



*ETFs and ITs

bostonerimus

I'm in the K.I.S.S. school of investing. If I was starting out I'd use a multi-asset fund with at least 60% in global equities. Most of my money is in 3 index trackers, a domestic equity index, an global equity index and a domestic bond fund. I'm retired and have kept the same portfolio as when I was working. When I take income from it I plan to take dividends and some capital gains when appropriate. I have decoupled my retirement income from the markets by using rent from a flat I own and a small DB pension so I don't worry about market volatility.

Albermarle

and then perhaps adding a couple of commodities trackers - farmland, coffee etc later on in life for added diversity,

I think for most people 'later in life ' means derisking rather than going from equities to commodities .
One argument you hear a lot on this forum is why buy a selection of equity and bond trackers , when you can buy multi asset funds that do it all for you . Cost is marginally more but is probably a better strategy for the majority of investors . Then on top of this core if you want , a few active funds in areas of interest ( like healthcare as already mentioned )

londoninvestor

AnotherJoe wrote: »

My approach is to think i can do better than the markets in some areas. For example, I think healthcare will be a bigger business proportionately in future, so i have a couple of healthcare funds,

You know this of course, but the bet you've made really isn't just on healthcare being a bigger business proportionately in future than it is now; it's on healthcare becoming a bigger business in future than the market now expects it will.

Thrugelmir

The largest company in the MSCI Global Small Cap Index has a market capitalisation of some $12 billion. With the median company being in the region of $845 million. Small in global terms, far from small in local terms though.

Sometimes active fund management does serve a purpose. When one wishes to fish for tiddlers in the pond (or the bigger oceans outside of the 23 deveoped country markets). There's far less free information and analysis available when assessing whether a company is worth investing in. Particularly when share prices can be far more volatile than their big brother counterparts.

Thrugelmir

AnotherJoe wrote: »

But if i was starting out again 40 years back i might well go for your approach mostly

Did you hold any exposure to Japan in your early years of investing?

Early years experience tends to shape and formulate how one invests in later life. Tried and tested is reassuring. Particularly if it works well. During an entire lifetime of investing though there's bound to be at least one event that forces one to rethink a strategy. If they wasn't. There'd be a single methology that everyone could follow without thought.